Does anyone know what's going on in the economy?

1. Does anyone know what's going on in the economy?

2. The powerhouse that is Commonwealth Bank

3. What we've learnt about retailers so far this profit season

4. NAPLAN shows the education system is a national disgrace

Homebuyers might be looking at their best spring season in years, with a rise in property listings, and properties spending longer on the market. Dr Nicola Powell from Domain explains what it means for prices.

Listener Brian asks:

"When the ASX tumbled last Monday there was a lot of talk about 'interest rate sensitive stocks' falling disproportionately relative to the index. Given that rates are starting to fall across the globe, the reaction of the market seems counterintuitive. Why?"

GOT A HOT TOPIC?

Thanks for reading my opinions on the week's biggest stories.

- Sean Aylmer

Reserve Bank Deputy Governor Andrew Hauser is a very English central banker. But this week he let fly at the market economists making predictions about interest rates. And he was colourful. Economic commentators had created “a world of winners and losers, gurus and charlatans, geniuses and buffoons. Those seeing things differently are castigated as incompetent, biased or on the make. And changes in view are presented as disastrous or humiliating failures." Hauser didn't make mention of the Reserve Bank's predictions in early 2022 that rates wouldn't rise until 2024, thereby encouraging people to take out home loans, only for the central bank to start lifting rates a few months later. Nor did he mention that those economic commentators are paid to make predictions and don't always have the very central bank luxury of sitting in the middle. But Hauser's fundamental point is that predicting the economy is a very uncertain business. And he is right. This week we had wage price data leaning towards the need to keep rates on hold. We had the NAB business confidence survey suggesting inflation pressures were easing. And we had consumer sentiment at very low levels, still, even though the labour market remains strong. Put all that together and I'm not sure that anyone really does know what's going on in the economy. 

Not satisfied with its share price hitting a record high two weeks ago, and having a market valuation of $222 billion, which is more than the combined value of National Australia Bank and Westpac, Commonwealth Bank this morning announced a better than expected cash profit of $9.8 billion. It was down two per cent from last year, but that was expected. What surprised many was that CBA upped its dividend to $2.50 a share, taking the full year dividend to $4.65 fully franked. That's a dividend yield on its current share price of 3.5 per cent, but most investors have been in the stock for much longer, meaning they are getting more like a five per cent plus dividend yield. They have also gotten growth in the share price. The all-important net interest margin - the difference between what a bank pays on deposits and receives on loans - was steady at 1.99 per cent. That's a good result. And while the economy might be slowing, people are still paying back their home loans with the majority of mortgagees in front of their scheduled repayments. The bank's impaired loan expense - what it puts aside for bad loans - fell, demonstrating confidence in its loan book. Boss Matt Comyn was a touch downbeat about the economic outlook, but this set of numbers demonstrates why CBA is the country's leading stock. 

Until about a week ago, the clear answer to the question above was no. She was the bright new shiny thing, following Joe Biden's withdrawal from re-election. But she was taking on a master manipulator in Donald Trump. That changed this week when the first serious polling of battleground states Pennsylvania, Wisconsin and Michigan by the New York Times and Sienna College put Harris ahead of Trump by four percentage points. These are the states, along with Arizona, Georgia and Nevada, most likely to decide the election. Betting markets pushed her into outright favouritism. Donald Trump realised it and the Republican nominee joined the world's richest man, Elon Musk, on X. The platform used to be Twitter and it had kicked Trump off, until Musk purchased it in late 2022 and invited him back. It was a lovefest between the two, with Musk asking for a role in a Trump White House helping cut federal spending. Trump, who has been anti-electric vehicles presumably because that plays best in states like Michigan, said Teslas were "incredible". This week the Trump campaign also declared that the crowds attending Harris rallies had been digitally altered to look larger. It wasn't true. And Trump said the debates with Harris were back on, having previously withdrawn. There is still a long, long way to go - exactly 12 weeks till polling day. Donald Trump isn't running scared, but he now has to worry about the rise and rise of Kamala Harris. 

Each year the state and territory governments spend about $40 billion on schools and the federal government spends around $25.6 billion. It is known as Gonski money, following businessman David Gonski's review into education which reported in 2012. About $319 billion has been spent under Gonski reforms, yet one in three children are still not performing at a baseline national standard. Results from the 2024 National Assessment Program - Literacy and Numeracy (NAPLAN) show the rich kids are doing much better than the poor kids. At a year 9 level, the percentage of wealthy children below the national standard for reading is 3.9 per cent. For poor kids it's 47.7 per cent. The trend occurs across all school grades, and across reading, writing, spelling, grammar and punctuation, and numeracy. It is a national disgrace and comes as the children in kindergarten in 2012 reach their final year of schooling in 2024. David Gonski, the architect of the system, recommended a needs-based approach. He has long called for governments to fully fund his recommendations and a couple of years ago said he wished he'd said that money be directly distributed to schools. Later this year, the federal and state governments will negotiate a new funding agreement. That's an opportunity. Education is literally an investment in the future and a way to lift living standards for all. A fully-funded needs-based approach is the answer. 

Only a week into the 2024 full year reporting season and the consumer discretionary stocks, particularly the retailers, have been by far the most interesting companies to watch. Some, like Nick Scali, have sounded exactly like we expected they would. Times are tough. High interest rates and the cost-of-living crisis have hit turnover. That was backed up by freight company Aurizon who said haulage of soft goods - think clothes - was weaker than anticipated last year. But others, notably online player Temple & Webster and JB HiFi, have surprised. In T&W's case it's been able to boost sales, and it's been even better in the first six weeks of the new financial year. At both companies, investors back management, notwithstanding households are not spending as much. JB HiFi is, arguably, the best-run retailer in the country with a track record of growth. It has had just two CEOs over nearly 15 years. T&W is starting to build a similar reputation. Chief executive and co-founder Mark Coulter said repeat customers now make up 57 per cent of all orders. That's what shareholders like to hear. Recently introduced tools such as augmented and virtual reality are helping the company shift products. Its private label brand now generates around 30 per cent of group sales. It is early days, but the retailers are demonstrating that management really matters when times are tough.

5. Can Kamala Harris really beat Donald Trump?

ASK FEAR & GREED

BEST OF THE WEEK

IF YOU MISSED THIS GUEST, CATCH-UP NOW

AND ONE LAST THING...

Elon Musk's long interview with Donald Trump on X (formerly Twitter) got off to a rocky start, with tech problems plaguing the first 40 minutes. It reminded us a little of this classic video: Elon Musk's very awkward, very public demonstration of the unbreakable 'armor glass' in the Tesla Cybertruck.